Banks spread wings to rural Nepal

To push up their deposits, urban-centric financial institutions — especially commercial banks and development banks — have started moving into rural areas where there is a vast untapped market.
In the fiscal year 2007-08, commercial banks added 81 new branches making it a total of 663 branches from Pashupatinagar in the east to Mahendranagar in the west. "However, only around 20 per cent of the total population has access to the banking system," said Nara Bahadur Thapa, director at the Research Department of Nepal Rastra Bank (NRB).
Within the fiscal year 2007-08, four new commercial banks: Sunrise Bank, Global Bank, Bank of Asia Nepal and Citizens' International Bank entered the market. NMB Bank upgraded itself to a commercial bank from a finance company and Development Credit Bank upgraded itself to a commercial bank from a development bank, thus making it a total of 25 commercial banks. Five more commercial banks are in the pipeline.
A total of 30 new financial institutions were established in the fiscal year 2007-08. These include five commercial banks, 20 development banks, four finance companies and one micro-finance institution. Currently, there are 58 development banks, 78 finance companies and myriad cooperatives.
"The size of the economy has not grown and number of players is increasing. This may encourage unhealthy competition," said Jyoti Pandey, general manager of Nepal Investment Bank Ltd.
Sujit Mundul, CEO of Standard Chartered Bank Nepal, concurred, "The increase in number does not guarantee quality of service. It is high time the government encouraged mergers." Pandey added, "We need few but efficient and strong banks, not too many banks that are weak," Pandey added. Because of the large number, regular inspection, supervision and monitoring may not be effective. With the growing number of financial institutions, the role and responsibility of Nepal Rastra Bank (NRB) has also increased.
With Basel II in implementation from this fiscal year, financial institutions are going to be more transparent, said NRB, the central bank. Despite the increasing number of financial institutions and decreasing size of the market pie, political instability, frequent bandhs and a slowdown in the economy, most financial institutions posted an increase in their net profits in the fiscal year 2007-08.
However, more than 90 per cent of their income accrued from interest. "This trend cannot last long," Radhesh Pant, president of Nepal Bankers' Association and managing director of Bank of Kathmandu (BoK) said, adding that the banks will have to start specializing in one sector or another. On one hand, the bankers complain that the number is increasing and margin is decreasing but on the other, commercial banks' deposits have also been increasing. "The deposits of commercial banks' have increased by Rs 87.07 billion (26 per cent) to Rs 421.52 billion in the fiscal year 2007-08," said the central bank's report.
Of the total deposits, saving and time deposits increased by Rs 36.77 billion (21.1 per cent) and Rs 38.33 billion (33.6 per cent) respectively. The reason: Establishment of five new commercial banks, expansion of branch network by existing banks and higher remittance inflows that increased people's accessibility to the financial sector.
Credit to the private sector also grew by Rs 71.42 billion (26.9 per cent) during 2007-08. Commercial banks, in addition to deposits mobilisation, funded their increased loans and advances through an additional capital mobilisation of Rs 11.73 billion. The credit-deposit ratio increased marginally to 82.6 per cent in mid-July 2008 from 82.1 per cent a year ago, the central bank's yearly report said.
In the fiscal year 2007-08, the liquid assets of commercial banks increased by 15.5 per cent to Rs 151.11 billion compared to a growth of 8.4 per cent the previous year. Of the total liquid assets, liquid fund of commercial banks grew by 21.7 per cent (Rs 14.08 billion) to Rs 79 billion in the review year compared to an increase of 5.2 per cent the previous year. In the fiscal year 2007-08, commercial banks had deposit of Rs 23.86 billion with NRB, which accounted for 6.2 per cent of their total domestic deposits. The balance held abroad by commercial banks increased by 21.1 per cent to Rs 41.1 billion. The credit trend has also been buoyant as real estate, production, residential and non-residential construction, wholesale and retail trades are now borrowing money for business.
Bank credit to food processing industries increased by Rs 2.48 billion and to iron and steel production sector by Rs 2.68 billion. Likewise, credit to the construction sector and real estate increased by Rs 12.59 billion and Rs 8.25 billion. Credit to real estate had increased by Rs 1.08 billion in the previous year. Other credit including the credit against share and trust receipt have also increased by Rs 17.51 billion compared to Rs 6.58 billion a year ago.
Besides the establishments of new banks, old ones also are in expansion mode. Banks like Nepal Investment Bank and BoK are in aggressive expansion mode. "We are definitely expanding," Pandey said adding that in the long run only the banks with large clientele base would survive. For the moment, banks might feel the pinch but in the long run they will have to go to the rural masses to get output.

Number of Banks and Financial Institutions Fiscal yearCommercial Banks 20 (2006-07) -- 25 (2007-08)
Development Banks 38 (2006-07) -- 58 (2007-08)
Finance Companies 74 (2006-07) -- 78 (2007-08)
Micro Finance Institutions 12 (2006-07) -- 12 (2007-08)
NRB Licensed Co-ops (limited banking transactions) 17 (2006-07) -- 16 (2007-08)
NRB Licensed NGOs (micro finance transactions) 47 (2006-07) -- 46 (2007-08)


Monetary policy soonNepal Rastra Bank is bringing monetary policy and bankers are keenly watching how the regulatory authority of the finance market will crack the whip on inflation and at the same time encourage financial intermediaries. Monetary policy has to encompass the whole macro-economic situation but it at the same time, cannot put the burden on financial institutions. Monetary policy should encourage budget and encourage financial institutions to reach out to the people in various possible ways.However, the burning issue right now is will Nepal Rastra Bank reduce Capital Adequacy Ratio (CAR) and increase Cash Reserve Ratio (CRR). CAR is expected to come down to nine per cent or 9.5 per cent from the current 10 per cent.Internationally, Basel II has recommended CAR at eight per cent. "A limit of nine per cent is also okay," said NBA president Radhesh Pant. "NRB has directed banks to maintain CAR at 10 per cent," Pant said. "However, monetary policy not only looks after the financial sector, it also has to look at the micro economic situation and where the country is headed to. In totality, the key drivers should be identified."

Capital marketThe capital market is dominated by financial institutions. Around 90 per cent of the trading at Nepal Stock Exchange, the sole secondary market, is of shares of financial institutions, commercial banks, development banks and finance companies. The stringent rules of the central bank and the disclosure system has not only created transparency in the financial market, it has helped push the capital market. The Nepse index rallies if the banking index goes up and vice-versa.

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Budget: Experts voice

Dr Bishwamber Pyakurel
Economist

The new budget has tried to include each and every sector, so I think it must have been designed in such a way that it can have successful implementation. The amount fixed for the budget is now going to be scattered in different sectors, and this will have short-term benefit as the state's mechanism cannot expand the allotted budget. Expansion allocation by revenue is fairly over-ambitious but I think Rs 30-32 billion cannot be invested in Nepal. The new budget itself has been announced two months late and it will take a great interval of time to reach the assigned villages, which is alarming. It is nice to hear that the new budget has touched many such sectors which were not getting right notification earlier like Health, Employment, Hydropower. This shows the good aspect of the new budget but as a whole it is quite an expansionist budget for the state. The budget has another good aspect as it has also chosen people with disabilities and has tried to work for prolonging their life expectation and has allotted a separate lump sum for it. The budget has large amount for the villages but if the allotted amount doesn't get invested there, it will be no use. In comparison to the previous budget, this one is more expansionist. The Finance Minister has said that Nepal Rastra Bank will bring a new monetary policy but I think even it cannot make perfect money allocation.Truly speaking, the new budget is quite expansionist and it might result in inflation.

Dr Dilli Raj Khanal
Economist
"In my opinion, it's a good try to take the budget in a new manner. Though there is the inclusion of many sectors in the new budget, I think in the near future the outcome can be very serious if it does not fulfil expectations accordingly. It has created new hopes for many sectors which were ignored for years. The budget has generated expectations among the people in general but unless and until the genuine framework that I made regarding the budget is implemented it may disappoint the people. The revenue section of the budget was somewhat satisfying, but I feel that if it were to fail in the long run it will create frustration. Simply put, the budget is over ambitious."

Dr Ram Sharan Mahat
Former Finance Minister
"I call it a pork barrel budget. It's blown up like a balloon and has crossed the limit of financial indiscipline. It is not a growth-oriented budget. It is oriented toward consumption and distribution. The budget can cause financial anarchy as it lacks focus and is unsustainable. All the revenue projections are grossly exaggerated and impractical. It will lead to high deficit and inflation. This transitional budget has piled up huge liabilities on any future government. This government's talk of opening cooperatives smacks of the Panchayat era where the government would open Sajha to cater to the needs of the people. I do not see any programmes to encourage private industries."

Dr Shanker Sharma
Former vice-chairman, National Planning Commission
"The new budget is really over-ambitious and there is too much over-programming. I think, in terms of priority to sectors, nothing was missed out," said Dr Shanker Sharma, former vice-president of the National Planning Commission adding that the budget has also mentioned increasing foreign aid by 100 per cent - a factor which increases donor dependency and is an example of over-programming. While cautiously praising the experimental budget Dr Sharma said, "It's inclusion of cooperatives, infrastructure development and youth development programmes' implementation is quite appreciable." The budget has also said that Nepal Airlines Cooperation (NAC) in collaboration with the government will increase the size of its fleet. Dr Sharma said, "This is the same budget which was ineffective in the earlier days and is being repeated. Even the new budget seems to include nearly all sectors, but I think it won't be sustainable and its effect can easily been predicted from the very next year. In the context of Nepal, resource mobilisation is difficult and foreign aid also cannot be utilized." He warned that revenue would not reach higher than Rs 10-11 billion and added that at least Rs 2-4 billion would be overdraft and thus raise inflation.

Dr Jagdish Chandra Pokharel
Former Vice-Chairman, National Planning Commission
"The budget is quite bold, although there are innate problems. It will face challenges in both raising revenue as well as in spending on development. Last year, the government was able to spend only about Rs 42 billion on development. It will be easier to spend on relief and welfare, but capital expenditures that require fulfillment of due procedures will be difficult. Villages that have less capacity and less resources will be affected. There is also doubt about the macroeconomic implications of such a large budget. We doubt that inflation will be limited to 7.5 percent.The major departure is on social security, especially for people in remote areas like Karnali. The government has also taken bold steps like providing 0.5 percent of property transaction fees to Bagmati civilization. That's a good idea. It has also shown commitment in controlling substances like tobacco and alcohol. The rest is mostly continuity of previous policies. However, we should try to see the bigger picture by linking the budget with the government's policies and programmes. Although most of the programmes appear to be the continuity of previous regimes, we should try to understand why the new government is talking about a break with continuity. It is talking about break in continuity in relation to the role of the government and political parties in the development process. It has rearranged statistical evidence to make a different historical assessment and draw a different conclusion. We are only seeing the preliminary building blocks of the Maoist policies. They are likely to lead the country towards greater role of the state and greater involvement of political parties in the development process. They don't trust the bureaucracy and believe that the political machinery must be engaged. This is what they mean by a break with tradition."

Maoist interests couched in populist budget

Armed with people-friendly slogans, Finance Minister Dr Baburam Bhattarai today presented an ambitious, inflated and deficit budget of Rs 236.15 billion.
The budgetary allocations are scattered. The minister tried to woo the rural lot, true to the Maoist ideology. However, the first budget of the Federal Democratic Republic of Nepal did not mention a word about federalism.
The budget for the fiscal year 2008-09 aims to allocate funds on a piecemeal basis, focussing on key social sectors like education, health, Dalits, women, Madhesis and marginalised communities. But, the focus seems diffused.
The budget has outlined underdevelopment and absolute poverty, stagnation of agriculture sector, rampant unemployment and semi-unemployment, inequality and discrimination, inadequacy of physical infrastructure, deteriorating quality of public education and educational discrimination, corruption and poor quality of work culture, to bring the peace process to a logical conclusion as some of the major challenges.
According to the annual estimate of income and expenditure, recurrent expenditure is estimated at Rs 128.51 billion, capital expenditure Rs 91.31 billion and principal payment Rs 16.18 billion.
Estimated expenditure is higher by 39.7 per cent against the total allocation of last fiscal and by 44.5 per cent than revised expenditure.
The budget has planned to raise Rs 129.21 billion from the current sources of revenue. Foreign assistance stands at Rs. 65.79 billion (including Rs 47.93 grant and 18.70 billion loan).
Deficit is pegged at Rs 41.11 billion, which has marginally doubled than last year’s projection.
According to former finance minister Dr Ram Sharan Mahat, it is a pork barrel budget. “It’s been blown up like a balloon and has crossed the limit of financial indiscipline. It’s not at all growth-oriented. All revenue projections are grossly exaggerated and impractical. It will lead to high deficit and inflation,” said Dr Bhattarai’s predecessor.
Dr Jagadish Chandra Pokharel, former vice-chairman of the National Planning Commission, however, hailed it as “bold”.
“There are innate problems and it will face challenges in both raising revenue as well as expenditure on development. Last year, the government could spend only around Rs 42 billion on development. It will be easier to spend on relief and welfare, but capital expenditures that require the fulfilment of due procedures will be difficult,” Dr Pokharel explained.
“Reading between the lines, one can understand Dr Bhattarai’s intention of providing jobs for his cadres in rural areas in the name of illiteracy eradication programmes,” said Constituent Assembly member Nabindra Raj Joshi. “The budget is populist, scattered and election-oriented,” he opined.
A reasonable sum has been earmarked for the agriculture sector, road network development and hike in salary of the civil servants, who are now entitled to a monthly raise of Rs 2,000. The increased pay packet comes into effect from this month.
Dr Bhattarai has tried to keep his promise to small farmers by waiving their debts of upto Rs 30,000. There has been exemption on interest and penalties on the loan amount — from Rs 30,000 to Rs 1,00,000. The government pledges to pay banks Rs 9.18 billion over a period of 10 years. He, however, seems to have forgotten the consequences of loan waivers.
Dr Bhattarai also seems to have pulled a fast one by protecting Hetauda Textile Industry and Gorakhkali Rubber Industry. He has guaranteed government mechanisms in the guise of ready markets.
The chief ideologue of the Maoists has even smartly assimilated his party’s manifesto with the populist free market economy.
Entrepreneurs were confused at the largesse. Kush Kumar Joshi, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) said, “The real test of the budget will be its implementation.” FNCCI was expecting the budget would spell out multiple Value Added Tax rates that it had been lobbying for long.
The budget has projected 7 per cent GDP growth and claimed to maintain inflation at 7.5 per cent, which is unrealistic, at best, since it is an imported phenomenon linked to global markets.
Currently, inflation is pegged at 12 per cent. It will be extremely difficult to bring it down any further. There is also doubt about the macroeconomic implications of such a large budget.
However, Dr Pokharel feels that the budget should be understood by linking it to the government’s policies and programmes. “Although most of the programmes appear to be a continuity of the previous regimes, we should try to understand why the new government is talking about a break with continuity,” the former NPC vice-chairman said.
The budget has rearranged statistical evidence to make a different historical assessment and draw a different conclusion.
“We are only seeing the preliminary building blocks of the Maoist policies. They are likely to lead the country towards greater role of the state and even greater involvement of the parties in the development process,” said the former vice chairman Dr Pokharel.
“They don’t trust the bureaucracy and believe that the political machinery must be engaged. This is what they mean by a break from the tradition,” he explained.

Budget at a glance

Some major features:

¨ Civil servants salary hiked by Rs 2000 for all last year it was hiked by 27 per cent
¨ Block grant Rs 15 million to 25 million for VDC last year Rs 1mn for VDC
¨ Rs 1.5 billion for the family of the citizens who have lost their life and were disappeared during the conflict.
¨ Rs 50 million for the residential schools operated by martyrs academy in five development reasons.
¨ Rs 12 million for living together settlements to the family who have been internally been displaced due to armed conflict.
¨ Rs 20 million for herbal collection facilitation at Jumla Banke and Salyan.
¨ Rs 20 million for Ram Vrikhsa Yadav Memorial Center at Janakpur Hospital and Suresh Wagle Memorial cancer center at TU teaching hospital in their memory.
¨ New International Airport at Nijgarh, Bara gets continuation
¨ Construction of Lok Marg – people's road
¨ New International Airport at Nijgarh, Bara gets continuation


Bits and pieces:
*The budget is full of slogans: Some of the slogans are original but others are brought to overshadow the UML's earlier slogans.
Know your slogans:
"In clean water lies Nepal's power"
"New Nepal, Learned Nepal"
"Make our Village Better and Beautiful"
"Cooperatives in every village, food storage in every house"
''Know Letters, Be Civilized"
"Slogan of Drinking water: Taps in the Villages"

*The budget promises to revive sick industries: The idea is better with new approach as Dr Bhattarai is trying to experiment new idea with Hetauda Textile and Gorakhkali Rubber Udhyog.

*The Budget gives the people a chance to voluntarily decalre their property and pay tax. Otherwise, the finance minister says the government will come tough on them.

* Income and expenditure of the high profiled people will also be monitored.

* Additional 0.5 per cent fee on registration of the sales of land and buildings in Kathmandu Valley for the 'Bagmati Civilization Development Programme'.

*10 per cent rebate in income tax (from remunerations) to women and rebate increased in land registration fees.

What's up what's down
Dearer
* Vehicular price
* Cigarette
* Alcohol
* Land transfer chargs
* Five percent education service tax
*
Bounties
* CFL bulb (electric bulb) cheaper
* Soybean and sunflower oils
* Ten per cent tax rebate in income tax from remunerations to the women
* More rebate in land registration fees if the women get land transferred to their own name
* Tax exemption on annual interest income of Rs 10,000 in the amount deposited to the micro credit institutions, rural development banks, postal saving bank, and cooperatives in the rural area
* VAT exemption for hydel projects
* 1.5 per cent extra tax added in income tax has been abolished
* Customs duty for the imports of industrial raw materials reduced
* Customs tariff reduced on the importation of refined palm oil
and packing materials
* The customs tariff on the importation of tanker for dairy industries has been reduced by fifty per cent.
*

The aim of the budget
* Maximum mobilisation of internal resources for self reliant economy,
* Broadening tax bases instated of raising tax rate,
* Export promotion by attracting domestic and foreign investment,
* Protection to domestic industries and conservation of natural resources,
* Strengthening of tax administration by making it more efficient,
* Special priority for the infrastructural projects,
* Relief to the disadvantaged groups of the society affected by the inflation,
* Strict monitoring of market and control of the illegal trade,
* Controlled sale and distribution of health hazards goods,
* Rationalisation of revenue rates committed in bilateral and multilateral
agreements,
* Directing means and sources toward productive sectors.

Budget at a glance

Highlights:
Total outlay Rs 236.15 billion
Recurrent expenditure Rs 128.51 billion
Capital expenditure Rs 91.31 billion
Repayment of loans Rs 16.18 billion
General administration Rs 111.82 billion
Development programmes Rs 124.19 billion
Net budget deficit Rs 41.11 billion.

Projections:
GDP growth - 7%
Agriculture growth - 4.5 %
Non-agriculture - 8.3 %
Inflation - 7.5 %

Source of finance for the budget:
Rs 129.21 billion revenue
Rs 47.93 billion foreign grant
Rs 18.70 billion foreign loan

Auto loans drive car sales more

You want to own a car or a bike but don't have enough cash to buy your favourite brand. Never mind, you can always visit your nearest or most reliable financial institution and walk out happily with the ignition keys of the vehicle of your choice.
Financial institutions are here to fulfil your needs and make life more comfortable as retail lending is one of the major portfolios of most financial institutions at present.
On one hand it is a boon for consumers, and on the other it has become a safe haven for banks and finance companies since the lifestyle of Nepalis has undergone a sea change over the last decade.
The hangover of the days of insurgency and the unstable investment climate have also compelled financial institutions to focus on retail lending.
Nepal Rastra Bank's family budget report says that the income of both the rural and urban masses has increased, fuelling consumerism. From a mobile phone to a car or even a house, a consumer can get loans and go on paying easily in equated monthly instalments (EMI). Though rising consumerism is not good in an economy like Nepal in the long run, it has led to a steep rise in retail financing, pushing vehicle sales up.Auto loan is one retail lending activity that is catching up among the urban mass. For banks, it's considered a more secure forte of investment.
"Apart from that, easy availability of auto loans has also fuelled auto sales," said Dambar Saru, Value Centre GM, Mortgage and Auto, Standard Chartered Bank Nepal Ltd, which approves around 110 auto loans on an average per month. "But we must also appreciate the dynamic needs of our consumers and the demography that compliment the sales," he added.Standard Chartered's auto interest rates vary between 7.99 per cent to 9.25 per cent per annum, depending upon whether it is for private or commercial use and sometimes depending upon the loan tenure.
"There are several factors contributing to auto loans being one of the thrust areas for retail lending," Saru said, adding that one of the reasons was the relatively small amount spread over a wide range of customers with secure and reasonable returns attached.
Though auto loan does not guarantee a large investment considering the present situation, the banks' approach towards auto loan is a good way to prevent liquidity from being inflated. Moreover, it does not increase non-performing assets (NPAs).
According to an estimate, current market share of auto lending is around 14 per cent. "Auto loan constitutes 41 per cent of total consumer banking assets portfolio of Standard Chartered," Saru said.
Depending upon the income level of an individual, banks finance up to 90 per cent of a vehicle's cost. The buyer bears the remaining cost, along with processing cost. Processing fee is normally one per cent of the total loan amount. EMI varies according to loan tenure, the loan amount and interest rate.
"Standard Chartered currently charges one per cent of the loan amount to the customer," he said, adding "At present, we have fixed EMI and the amount of EMI varies depending on the tenure, loan amount and interest rate."While sanctioning vehicle loan, the bank does have a ceiling on the maximum amount that it can finance for a vehicle. For example, it can finance only upto 90 per cent of the cost of the vehicle for private use (new vehicles only), and 80 per cent of the cost of the vehicle for commercial use (new vehicles only).
"We finance up to 90 per cent of vehicle price or maximum amount of Rs 7 million, whichever is lower for the private use vehicle and up to 80 per cent of the vehicle price or maximum amount of Rs 5 million whichever is lower in the case of commercial vehicles," he informed.
However, there is a stiff competition in the market due to increasing number of financial institutions lately. Banks have become more customer-centric and market their products accordingly. More competition means more benefit to customers as they can make informed decisions based on service and terms of sanction at particular interest rates. "But banks need to be more careful in determining interest rate which needs to take care of the risk factors as well," one of the bankers said.
Also, easy availability of credit could allow a customer to overstretch beyond his means leading to delinquency and subsequent default. Hence, banks need to be more cautious in selecting target market and in understanding the customers' needs."Retail financing plays a crucial role in generating vibrancy into the economy by offering different products and services to diverse groups of people and communities as per their needs which in turn will fuel demand for consumer products and at the same time increase revenue for the government in the form of various taxes that are levied," Saru added.
Finance facility is available for second-hand vehicles also. "SCBNL extends loans for the purchase of used or second-hand vehicles, either for self finance or 'buying' under the private segment only," Saru said, adding that these vehicles should not be more than eight years old at the time of loan maturity."
For that, the bank has appointed valuers to determine market price of the vehicle and valuation has to be done by two of our authorised independent valuers. Based on their valuation, we determine the loan amount," he said.
Auto loan is also considered a good way to prevent liquidity from getting inflated. However, Saru does not agree, "When we talk about liquidity, there are various aspects to it and a bank's strategy for loan - be it auto or other loans - is linked to its liquidity and risk appetite. Auto loan is a relatively longer term loan with a maturity of three to seven years and it is prudent to have the funding from the bank's long term or core sources.
"However, the government policy has become a roadblock to the growth in auto loans for commercial vehicles. "The Department of Transport Management is very rigid in case of transfer of ownership of such vehicles," Upendra Poudel, chief executive officer of NMB Bank, said and added that in case of commercial vehicles, the department does not allow transfer of iownership of the vehicle saying it has no rule to that effect for Kathmandu Valley.
The result is that if any financial institution brings the vehicle back after the loan is defaulted, the bank can not resell it and the loan remains unpaid.

Insuring for rainy days

Insurance is uusally considered the concept of bearing risks which ultimately lead to family protection, important adjunct to trade, commerce and industry, loss prevention, contribution to national economy and mobilisation and investment of funds. The development of the insurance sector, however, depends on the growth of other economic sectors and also purchasing capacity of the people.
The trend of insuring vehicles owned by individuals and institutions is increasing by the day. People are getting more aware of the need to insure vehicles they own due to the increasingly risky environment in recent days. Auto insurance is catching up recently as people have become more conscious that insurance can really help during difficulty.
"People like to secure their property when there is involvement of big money, unsecured and small roads and more exposure to accidents due to ineffective rules," said Archana Pathak, deputy business development manager at Shikhar Insurance that insures about 450 vehicles on an average each month.
Growth in auto insurance business stands at over 30 per cent and people are gradually realising the need to insure four-wheelers as well as two-wheelers. The increased trend of buying vehicles on finance has also contributed to auto insurance as insurance is mandatory in finance schemes.
In 2006-07 alone, premium insurance companies collected Rs 834,077,295 on vehicle insurance of their total Rs 2,854,632,365 premium collection.
According to data from Beema Samiti (Insurance Board), of the total growth in insurance sector auto insurance contributed to over 30 per cent in the year 2006-07.
The market for vehicle insurance has increased due to cheaper premium also. "This is because the insurers want to minimise the premium and try to get more when they claim," said Kewal Krishna Shrestha, CEO of Everest Insurance Company.
The insurance for commercial vehicles is even cheaper than that of private ones. A total of 17 non-life insurance companies provide auto insurance to customers currently. Beema Samiti regulates them and issues directives from time to time for their proper functioning.
However, all is not hunkydory. There are problems also pulling the growth down. "Limited market, topographical conditions, insignificant growth, low capital base of insurers, problems in re-insurance, more players, stiff competition and no compulsory motor vehicle insurance are some key factors blocking the growth of auto insurance," said an industry insider.
Competition among insurance agencies has also hit the industry hard. "There is cutthroat competition due to too many players in the small market," said Pathak, adding that some of the companies were violating the market rules with extra discounts like fleet discounts, which are only to be given if more than one vehicle in the same name is insured. "As a result, the customer has to face problems while staking a claim. Low premium exploits customers as they are misguided," she added.
The growing number of vehicles and mandatory provisions from financing institutions to insure vehicles before financing have helped increase auto insurance, according to insurance agents.In comparison to commercial vehicles, fewer private vehicles are insured due to their owners' lack of awareness of benefits of vehicle insurance.
Despite the increase in number of insurance agencies people's interest in insuring private vehicles has not increased accordingly, Pathak said and added, however, that growth was steady. "Auto insurance holds tremendous potential for growth," Shrestha said.
"Insurance premium for both private and commercial vehicles is reasonable," Pathak said adding that calculating parameters are different though. Private vehicles are judged on the basis of insured amount, cubic capacity and age but commercial vehicles are either goods carrying or passenger carrying. "The commercial vehicle thus requires seat capacity/carrying capacity which determines the premium," she added.
Similarly, time period also affects vehicle premium as depreciation decreases the value of the sum insured, which directly determines the insurance premium. Also, when renewal is done the insured amount is adjusted every year with depreciation.
Auto insurance rates are tariff rates. All general insurance companies follow the guidelines of the regulator. The rates vary according to the cubic capacity of the vehicle. The value to insure (sum insured of the vehicle) and the age of vehicle also affect the premium to be paid.
"For instance, the break-up with reference to cubic capacity (cc) is below 1000 from 100cc to 1600 cc and above 1600 cc will have different rates," Pathak informed.One can insure second-hand vehicles also. "Second-hand vehicles are also insured," Pathak said adding that it was just like insuring a first-hand vehicle. "The agency needs a copy of the blue book showing the transfer of ownership. Also, the value of the vehicle might differ due to depreciation," she said.
The there is the problem of people complaining about the lengthy process of insurance claims. "While paying premium customers want to pay less but when they claim they want to get more," grumbled Shrestha.
According to statistics, contribution of the insurance business to the total GDP stands at 1.09 in the year 2005-06 and this contribution is gradually increasing. In the year 2006-07, it is expected to contribute a little above two per cent to the total GDP.

Growth trend of auto insurance in total insurance
2001-02 – 18.15 per cent
2002-03 – 20.34 per cent
2003-04 – 25.54 per cent
2004-05 – 26.61 per cent
2005-06 – 29.22 per cent
2006-07 – more than 30 per cent (expected)

From one to one too many

For anyone taking a round of Kathmandu Valley these days it would be hard to believe that the first automobile entered Nepal only at the start of this century. The first Hudson motor car — brought from Australia to Bangladesh and from there to Nepal via Delhi — was carried to Kathmandu by labourers on their backs in 1934.
Since then, the growth in number of vehicles has been indicative of increased purchasing capacity of people and their fast changing lifestyle despite a poor road network. Interestingly, of the total vehicles registered throughout the country more than 60 per cent are plying in the Valley alone.
Today, the total number of vehicles plying is around six lakhs, according to the Department of Road and Transportation (DoTM). The geometrical growth of vehicle is attributed to various reasons, like easy availability of finance schemes at competitive rates and increasing consumerism due to rising living standards of Nepalis.
The rapidly changing lifestyle and class-consciousness of people have added a special impetus to this growth pattern. The pace of growth has doubled over the last eight years. From a total of 3,54,955 vehicles registered in 2001-02, the figure has jumped to 6,40,671 till the eighth month of 2007-08. The growth in these eight months of the fiscal year 2007-08 was 9.1 per cent, according to the DoTM.
DoTM figures show there is an impressive increase in the number of new vehicles during the last five years. It clearly shows that the sector is growing exponentially despite poor road infrastructure. Progress in road network expansion and upgradation of existing ones has been however pathetic.
"If the government charges less duty, it can collect more revenue," said Akash Golchha, executive director, Golchha Organisation — the authorised dealer of Daihatsu, Proton and Ssang Yong motors for Nepal. "The revenue should be invested on road infrastructure," he suggested.
Though vehicle tax contributes 1.4 per cent to the total revenue collection, the revenue could not be mobilised it to upgrade or develop the road networks.
Today, you name it and they are all here — Toyota, BMW, Skoda, Geely, and not to forget the myriad Malaysian and Indian brands. "The Nepali market was underestimated in the past," said Prabal Saakha, managing director of Saakha and Universal Automobile Pvt Ltd that sells the Geely brand of Chinese cars.
"People are not only price conscious but they look for diversified brands," he said adding that the people who have money want the best of vehicles. "Global brands and their numerous attractive models have laddered up the sales of vehicles," Saakha added.
"Unlike in the past, the vehicle is not only a means of transportation but also a status symbol," he said.One company may not provide in one vehicle everything that a customer needs. Thus the market is diversified. According to Saakha, the market has been reacting faster as one brand cannot hold sway for long.
On one hand the encouraging trend is that top foreign brands are winning the hearts of Nepali auto-buffs but on the other the new government is rumoured to increase tax on vehicles. If the grapevine is to be believed, customs tax could go up by 25 per cent while excise could be hiked to 40 per cent from the current 35 per cent. Whatever the changes, the end users will suffer if the government increases taxes. "The government should instead encourage and motivate people to pay taxes — by revising the current structure — otherwise, why should people pay tax," an industry insider said.
There is a total of 180 per cent customs tax and a 20 per cent tax on value addition, raising it to roughly 200 per cent the cost of a vehicle. The government should not be conservative in revenue matters. Most policies are idealistic and guided by old principles of raising more money through higher rates of taxes. But the money raised through vehicle tax has to be utilised for the upgradation, upkeep and expansion of road networks.
The country's total road length was 17,982-km till the eleventh month of 2007-08 and the total number of registered vehicles was 6,40,671 till the eighth month of 2007-08. According to the DoTM, by the end of 2006-07 the ratio per kilometre vehicle was 35.
Improvement of road conditions, extensions, development of the Bagmati/Bishnumati corridor, additional flyovers, fuel and air quality policies have to be strictly maintained for the growth of the sector.
Driving regulations and traffic sense also have to be refreshed for commercial vehicle drivers. "Civic sense and stringent traffic rules are vital," Golchha added.
The government's indifference to road network development and upgradation is hindering the growth of the automobile industry that is the bread and butter of over 3,50,000 Nepalis.According to Nepal Automobile Dealers Association (NADA), the number of people indirectly employed could be well up to a million. Today, the sector is one of the largest employment generators as well as revenue provider to the government.
That apart, it is high time that the government brought a time-bound action plan to encourage clean technology and electrical vehicles that will not only help maintain the quality of the environment but also save the country from being a hostage to rising petroleum prices.

Number of vehicles registered at DoTM
2001-02 - 3,05,395
2002-03 - 3,54,955
2003-04 - 3,92,565
2004-05 - 4,32,264
2005-06 - 4,72,795
2006-07 - 5,87,056
2007-08 - 6,40,671 (53,615 added till eight months only)
Source: Department of Transport Management

ADB revises GDP growth rate

Asian Development Bank (ADB) has revised the growth at 5.6 per cent against its earlier projection of 3.8 per cent for Nepal in 2008.
"Similarly, for the year 2009, Nepal will post five per cent growth," states the updated Asian Development Outlook (ADO) 2008 that has been published by the bank. The 2009 projection — to five per cent — is also an amendment.
According to an update publication of the Asian Development Outlook (ADO) 2008, Nepal will achieve a growth 5.6 per cent in 2008, against earlier projection of 3.8 per cent. The update matches the recent yearly report of the central bank.
"Central Bureau of Statistics (CBS) has placed the real GDP growth in basic prices at 5.6 percent in the fiscal year 2007-08," Nepal Rastra Bank's yearly report had revealed.
The updated ADO is also hopeful of the political situation. But it terms the situation fragile "despite successful constituent assembly elections as well as elections for president and prime minister," the updated Nepal report states.
Industrial growth, however, declined to 1.8 per cent from 3.9 per cent due to the impact of power and fuel shortages and labour problems.
"Assuming normal weather conditions, greater political stability and improved power and fuel supplies, GDP will grow by about five per cent in 2009," the report states.
As a result of sharp increases in food and oil prices, year-on-year inflation rose to 13.4 per cent in mid-July 2008. "But average inflation in 2009 is expected to hit 8.5 per cent, an increase form earlier forecast of 6.5 per cent," it states.
Higher remittances and tourism receipts helped more than offset a widening trade deficit to bring the current account surplus to 1.9 per cent of GDP (compared to a deficit of 0.1 per cent in the previous year). The update projects the current account surplus at 1.5 per cent of GDP, supported by sustained growth in remittances and tourism receipts for 2009.

Bank of England intervens to stabilise markets

London: The Bank of England pumped an extra 20 billion pounds ($36 billion) into money markets, following a similar move by the European Central Bank (ECB). The amount injected by the Bank of England is four times the sum of Monday's intervention, confirming the continuing pressures on markets from the Lehman Brother's collapse. The Bank of England said the action was being taken "in response to conditions in the short-term money markets this morning". - DPA

ADB revises GDP growth rate

Asian Development Bank (ADB) has revised the growth at 5.6 per cent against its earlier projection of 3.8 per cent for Nepal in 2008.
"Similarly, for the year 2009, Nepal will post five per cent growth," states the updated Asian Development Outlook (ADO) 2008 that has been published by the bank. The 2009 projection — to five per cent — is also an amendment.
According to an update publication of the Asian Development Outlook (ADO) 2008, Nepal will achieve a growth 5.6 per cent in 2008, against earlier projection of 3.8 per cent. The update matches the recent yearly report of the central bank.
"Central Bureau of Statistics (CBS) has placed the real GDP growth in basic prices at 5.6 percent in the fiscal year 2007-08," Nepal Rastra Bank's yearly report had revealed.
The updated ADO is also hopeful of the political situation. But it terms the situation fragile "despite successful constituent assembly elections as well as elections for president and prime minister," the updated Nepal report states.
Industrial growth, however, declined to 1.8 per cent from 3.9 per cent due to the impact of power and fuel shortages and labour problems.
"Assuming normal weather conditions, greater political stability and improved power and fuel supplies, GDP will grow by about five per cent in 2009," the report states.
As a result of sharp increases in food and oil prices, year-on-year inflation rose to 13.4 per cent in mid-July 2008. "But average inflation in 2009 is expected to hit 8.5 per cent, an increase form earlier forecast of 6.5 per cent," it states.
Higher remittances and tourism receipts helped more than offset a widening trade deficit to bring the current account surplus to 1.9 per cent of GDP (compared to a deficit of 0.1 per cent in the previous year). The update projects the current account surplus at 1.5 per cent of GDP, supported by sustained growth in remittances and tourism receipts for 2009.

Investors watch out for key US events Tuesday

Investors around the world will be watching out for some key events that will unfold over Tuesday and Wednesday in the world's largest economy the US.
A key question haunting the mind of investors is: what kind of third quarter earnings will the world's largest investment bank Goldman Sachs report Tuesday followed by the world's second largest investment bank Morgan Stanley reporting Wednesday.
After the fourth largest investment bank Lehman Bros filed for Chapter 11 bankruptcy Monday and the third largest investment bank Merrill Lynch agreed to be bought over by Bank of America, many are wondering if the independent securities firm model is on its last legs.
Just six months back another such firm Bear Sterns had gone under and was bought out by JPMorgan-Chase.
"These two may be all right now but who knows two months down the line what they will report," said Naresh Pachisia, managing director of eastern India's largest distributor of financial products, the Kolkata-based SKP Securities Ltd.
Even Lehman Bros and Merrill Lynch had sent out comforting letters to its customers days before reporting huge and unbearable losses, he said.So far, the two firms have been relatively unscathed by the credit crisis, compared with their virtually defunct brethren, and analysts expect Goldman to record a profit of $1.73 a share, or about $680.0 million. Shares of the firm slumped $16.57, or 10.8 percent, to $137.64 Monday. Morgan Stanley was off $5.04, or 13.5 percent, to $32.19.
The second key event will be the meeting of the US central bank the Federal Reserve's policy makers Tuesday. The are expected to announce a 25 to 50 basis points cut in the short-term interest rate."Given the current situation, they have no choice but to inject liquidity in the system," said Jagannadham Thunuguntla, the equity head of a Delhi-based securities firm Nexgen Capitals Ltd.A break in oil prices has given the central bank some breathing room. Crude slumped $5.47, to settle at $95.71, Monday, its first close below $100.00 since March 4, and its lowest finish since February 15. The drop in oil and other commodities have eased worries of runaway inflation, and investors will be looking out for Consumer Price Index data to be released Tuesday by the US Labour Department.
The third event to watch out for is whether American International Group (AIG) manages to raise needed capital in an effort to avoid what could be a crippling downgrade to its credit ratings. New York's insurance regulator and Governor David Paterson has given approval to AIG to borrow up to $20.0 billion from its subsidiaries in order to sustain operations, but that is less than half of the $40.0 billion to $50.0 billion that it seems to need.
According to TradeTheNews.com, the Fed is unlikely to provide a bridge loan AIG asked for, and the government has asked Goldman and JPMorgan Chase to provide a lending facility to the insurer to the tune of $75.0 billion. Shares of AIG shed more than half their value Monday, losing $7.38, or 60.8 percent, to $4.76.
Finally, investors will be looking out for the ailing US housing market, which has been a huge factor in the collapse of firms like Lehman.The US home builders lobby, the National Association of Home Builders is due to report its monthly housing index Tuesday afternoon.
Thus, investors around the world will have their radars firmly fixed on the US over Tuesday and Wednesday.

Manpower drain on rise

The percentage of Nepali workers going abroad for foreign employment surged by 12.5 cent in the fiscal year 2007-08.
Department of Labour and Employment Promotion (DoLEP) granted exit approval to 2,41,100 workers in 2007-08. It had granted approval to 2,14,400 workers the previous fiscal year.
Qatar, Malaysia, UAE and Saudi Arabia werethe top four countries absorbing Nepali workers. Qatar alone absorbed 84,500 Nepali workers, showing an increase of 42.9 per cent over last fiscal year. This is nearly 35 per cent of the total foreign employment, according to Nepal Rastra Bank’s data.
“The agencies might have got more demands from Qatar,” DoLEP director general Keshar Bahadur Baniya said adding that the trend was changing according to demands from various countries.
Qatar was followed by Malaysia (49,600), UAE (44,100) and Saudi Arabia (42,300). Qatar became the top destination for foreign employment in 2007-08. Malaysia was the top destination till last year. This year, it slid down to second position because of the difficult working conditions there.DoLEP said the total number of workers going abroad for foreign employment exceeded 1.2 million till 2007-08. The number of migrant workers leaving for various destinations also increased by 27.23 per cent in the month of Shrawan compared to that last Shrawan. According to DoLEP, “A total of 23,130 workers left for various destinations in Shrawan.”
Around 400,000 Nepalis are working in Malaysia in construction, manufacturing and agriculture sectors. The United Arab Emirates (UAE) received 3,446 in the month of Shrawan compared to 3,093 last Shrawan, an increase of 11 per cent. Bahrain also received a significant number of Nepali workers — 700 persons, DoLEP said.

Nepse introduces float index

Nepal Stock Exchange (Nepse) has come of age ... It will introduce float index and sensitive float index — the globally accepted best practice to make the secondary market index more realistic — from Sunday.
Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalisation of a company for the purpose of index calculation and assigning weight to stocks in index.
"A free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market," said Rewat Bahadur Karki, general manager and chief executive officer (CEO) of the sole secondary market.
Free-float market capitalisation is defined as the proportion of total shares issued by the company that is readily available for trading in the market. For example, 150 million-unit of shares are listed in the Nepse but tradable shares account for only a little over 53,2000. "Since all NT shares are not available for trading, it should not weight the price with total outstanding shares to compute the index," he added.
"It is essentially the total outstanding shares, less the promoter's holding and other shares with a lock-in period," he said, adding that the float index will boost investors' confidence as it will reflect the real market. However, Karki clarified, "Nepse is not completely shifting to free-float methodology immediately for calculating the index. The present Nepse index will also continue."
The float index and sensitive float index will be calculated from the closing price on August 24 as before that date no variation was observed. The NT shares started trading from August 24.
Share analyst Rabindra Bhattarai pointed out, "Under a full-market capitalisation methodology, companies with large market capitalisation like NT and low free-float cannot generally be included in the index because they tend to distort the index by having an undue influence on index movement, like NT shares did in the past weeks."
However, under the free-float methodology, since only the free-float market capitalisation of each company is considered for index calculation, it is possible to include such closely held companies in the index while preventing their undue influence on the index movement at the same time.
Float-index generally excludes promoters' holding, government holding, strategic holding and other locked-in shares — like employees shares — that will not come to the market for trading in the normal course.
The market capitalisation was Rs 4.14 trillion before the trading of Nepal Telecom (NT) shares started. Now it has hit Rs 5.37 trillion, which is misleading the capital market. "The market capitalisation of each company in a free-float index is reduced to the extent of its readily available shares in the market," said Bhattarai.Free-float methodology makes the index more broad-based by reducing the concentration of the top few companies. "For example, the concentration of top five companies like Standard Chartered, Nabil Bank, Bank of Kathmandu, Nepal telecom and Nepal Investment Bank will reduce," he said.
The shift to free-float will reduce the weight of a number of stocks in the index. Some stocks are likely to be hit. "Their weight in Nepse is likely to decline but the price change in some particular company's shares will not affect the whole index," Bhattarai said adding that investors will benefit as it is more realistic than the sensitive index or the all-share index in practice now.

Income revenue up by 21 per cent

Income tax revenue increased by 21.4 per cent to reach Rs 19.1 billion in the fiscal year 2007-08 compared to an increase of 42.7 per cent in the previous fiscal year.A significant amount of income tax paid by large taxpayer companies like Nepal Telecom (NT), Surya Nepal, Spice Nepal, Gorkha Brewery, Standard Chartered Bank Nepal Ltd contributed to such a growth of income tax collection in the review year, said a report by Nepal Rastra Bank.

In 2007-08, among the components of revenue, VAT constituted 29 per cent followed by customs duties at 18.4 per cent, income tax at 17.8 per cent and excise duty at 10.4 per cent. In the previous year, such ratios were 29.8, 19, 17.9 and 10.7 per cent, respectively.

Revenue mobilisation also increased by 22.6 per cent to reach Rs 107.6 billion in the fiscal year 2007-08. Revenue had risen by 21.3 per cent to reach Rs 87.7 billion in 2006-07, the central bank report said.

Consequently, revenue to GDP ratio climbed to 13.1 per cent from 12.1 per cent the last fiscal year. Such an impressive growth of revenue was on account of substantial increase in import of merchandise goods and resulting increase in customs duties, VAT revenue, excise duty and increase in income tax as well as non-tax revenue.

Of the total revenue mobilisation, VAT revenue grew by 19.2 per cent to Rs 31.2 billion in 2007-08. The growth in VAT revenue was on account of growing imports and consumption induced by the rise in remittances and reforms in VAT administration in the form of establishment of Large Taxpayers Unit, strengthening of the billing system and non-filers' management.

In 2007-08, customs revenue rose by 18.6 per cent to Rs 19.8 billion compared to an increase of nine per cent the previous year. Reforms in customs administration, increase in imports of high tax yielding vehicles and spare parts as well as rise in the amount of Indian excise refund contributed to such a high growth of customs revenue.

Excise revenue increased by 20 per cent to Rs 11.2 billion compared to an increase of 43 per cent the last fiscal year year. Reforms in excise administration, identification of new excisable goods and increase in imports of high tax yielding vehicles and spare parts accounted for such an increase in excise revenue, said NRB's yearly report.

Non-tax revenue grew by 29 per cent to Rs 21.3 billion compared to an increase of 17.2 per cent the last fiscal year. Such an increase in non-tax revenue was on account of increase in dividends paid by some public enterprises including NRB as well as the amount received by the government in the form of principal repayment from NT, Nepal Electricity Authority and Civil Aviation Authority.

Trade deficit widens, export dips

Due to frequent strikes and bandhs plaguing the manufacturing sector, trade deficit has been widening over the recent months. Trade deficit with India, Nepal's largest trade partner, is double that of with the rest of other countries.
According to Nepal Rastra Bank's yearly data, in 2007-08 the merchandise trade deficit widened by 22.2 per cent to reach Rs 165.3 billion compared to an increase of 19.2 per cent the previous year. The ratio of merchandise trade deficit to GDP was 20 per cent in 2007-08. "Of the total, trade deficit with India amounted to Rs 105.9 billion and the remaining deficit of Rs 59.4 billion with other countries," said the central bank's yearly report.
Significant growth in imports relative to a marginal rise in exports widened the merchandise trade deficit. Total exports went up by 2.4 per cent in comparison to a decline by 1.4 per cent the previous year. Of the total exports, those to India dropped by 7.4 per cent in contrast to a rise by 2.5 per cent last fiscal year. "Exports to other countries, however, soared by 25.5 per cent as against a decline of 9.6 per cent in 2006-07," revealed the report.
The dismal performance in exports to India was due to decline in the export of vegetable ghee, textiles, chemicals, resin and readymade garments. On the other hand, exports to other countries rose primarily because of increase in export of pulses, Nepali paper and paper products, herbs, wheat, noodles, ceramic products, electric wire and stationery.
Total imports increased by 16.1 per cent in 2007-08 compared to a rise of 12 per cent the previous year. While imports from India accelerated by 24.7 per cent compared to a growth of 8.1 per cent in 2006-07, imports from other countries rose by just 3.5 per cent compared to a rise of 18.3 per cent the previous fiscal year. As a result, total trade deficit expanded by 22.2 per cent in comparison to its growth of 19.2 per cent a year earlier.
Import of petroleum products, MS billet, vehicles and spare parts, hot rolled sheet in coils and cold rolled sheet in coils from India as well as an increase in the import of telecommunication equipment and parts, other machinery and parts, transport equipment and parts, video television and parts and polythene granules from other countries have contributed to the upsurge in total imports, said the report.


Nepali team returns
KATHMANDU: US officials have urged Nepali entrepreneurs to work things out at the political level for easy access of Nepali readymade garments' to the US market. "Our team, led by chief secretary Bhojraj Ghimire, has been advised by US officials to talk at the ministerial level to solve the problem of the Nepali readymade garments sector," Prashant Pokharel, president of the Garments Association of Nepal (GAN) said adding that some of the African countries, Afghanistan, Pakistan and some Carribean countries are getting customs free access to the US market on bilateral agreements. There is no bilateral trade agreement between Nepal and the US. "The isssue should be taken up with the US during Prime Minister Pushpa Kamal Dahal Prachanda's visit to the US next week," said Pokharel. The US is the largest market for Nepali readymade garments.

Tottering NT shares drag Nepse down

Nepal Telecom (NT) played a major role in the rise and fall of the Nepal Stock Exchange (Nepse) index this week. Nepse ended up losing 52.45 points to close at 1067.20 points from last week's closing of 1119.65 points. The week started with a record gain as Nepse surged by 55.73 points in a single day's trading to 1175.38 points from last week's closing of 1119.65 points.
But it faltered when the NT shares started losing, and plunged by 41.09 points to 1134.39 points on Monday. Tuesday also saw a fall of 32 points to 1102.39 points. Wednesday was no better for the NT shares which lost heavily pulling Nepse down to 1064.01 points. However, on Thursday, the last day of trading in the secondary market, Nepse gained 3.19 points to close at 1067.20 points.
Commercial banks, hotel, finance and development banks groups were winners this week whereas hydropower, insurance, trading and other groups were the losers due to the fall in NT shares price. NT, however, topped the chart in terms of monetary value with Rs 133.94 million this week.
According to the central bank, year-on-year (y-o-y) market capitalisation increased by 96.6 per cent to Rs 366.3 billion by the end of fiscal year 2007-08. Market capitalisation to GDP ratio also increased to 44.6 per cent from 25.6 per cent a year ago. "Of the total market capitalisation, banks and financial institutions constituted the highest share of 89.3 per cent," said the yearly record of Nepal Rastra Bank (NRB).
Total paid up capital of listed companies stood at Rs 29.5 billion in mid-July 2008, with an increase of 35.5 per cent over a period of one year. This increase was due to the additional listing of securities. Of the increased amount, the portion of rights shares was 55 per cent, bonus shares 31 per cent and ordinary shares 14 per cent, it said.
Monthly turnover to market capitalisation ratio stood at 0.72 per cent in mid-July 2008 compared to 0.77 per cent a year ago. The twelve-month rolling standard deviation stood at 104.5 during the period compared to 85.6 a year ago, reflecting an increased volatileness in the stock market.
Securities Board of Nepal (Sebon) permitted Rs 11.6 billion worth new issuance. These consisted of ordinary shares of Rs 1012.7 million to eighteen companies, right shares of Rs 7605.2 million to 49 companies and debentures of Rs 2950 million to five companies including Nepal Electricity Authority. "Likewise, Nepse listed bonus shares of Rs 2109 million to 50 companies in the review year," the yearly data stated.
The government issued fresh treasury bills worth Rs 12.5 billion, development bonds of Rs 6.1 billion and Citizens' Saving Certificates worth Rs 1.9 billion in the fiscal year 2007-08.

Nepse misleads capital market
Market capitalisation has increased to Rs 5.83 trillion — from Rs 4.14 trillion, a hike by Rs 1.69 trillion at closing of this week’s trading — after Nepal Telecom’s shares started trading in Nepal Stock Exchange Ltd (Nepse). But, it is high time Nepse changed its traditional system of calculation of market capitalisation because that does not reflect the capital market.
Market capitalisation swelled not because the trading increased, but due to traditional method of calculation. Nepse listed 15,00,00,000-unit of Nepal Telecom (NT) shares but tradable shares are only slightly more than 53,2000-unit. If there is a hike of Rs 10 per unit share, then the total market capitalisation will increase by Rs 15 million in a day, which is not real.
The remaining unit of shares that the government holds at present should not be counted in the real market capitalisation. Either the government should also start selling its shares at Nepse or Nepse should calculate only tradable NT shares for realistic market capitalisation. The government can also sell its remaining unsubscribed shares at Nepse.

Can government crack whip on inflation

It will be a Herculian task for the present government that is preparing the budget to crack the whip on the inflation that is rising by leaps and bounds. The rise is attributed to rising food prices and hike in petroleum products' prices. However, the GDP has grown by a satisfactory 5.6 per cent due to a good monsson.
The year-on-year (y-o-y) inflation climbed to 12.1 per cent in mid-July 2008 from 5.1 per cent in mid-July 2007, according to current macroeconomic situation based on the data of 2007-08 published by Nepal Rastra Bank (NRB).
The average annual consumer inflation rose to 7.7 per cent in 2007-08 from 6.4 per cent in 2006-07. Rise in food prices and hike in prices of petroleum products were the driving factors for inflation in 2007-08, states the report.
The annual average price index of food and beverages group rose by 10.1 per cent in 2007-08 compared to an increase of 7.2 per cent last year. Of the items under food and beverages group, price indices of oil and ghee, grains, cereal products and pulses witnessed a growth of 20.9, 14.6 and 14.2 per cent respectively in the review period compared to an increase of 6.7, 6.4 and 17 per cent respectively the previous year.
Region-wise, the annual average yearly price level in Kathmandu Valley, the Hills and the Tarai rose by 7.2, 7.4 and 8.1 per cent respectively in 2007-08. The respective rates were 6.1, six and 6.7 per cent the previous year. A relatively higher price level was observed in the Tarai region mainly on account of the effect of sporadic unrest there in the review year. Average core inflation rose by 6.1 per cent in 2007-08 from six per cent the previous year, according to the central bank.
The balance of payments (BoP) recorded a surplus of Rs 29.7 billion compared to a BoP surplus of Rs 5.9 billion in 2006-07 and the budget deficit — on a cash basis — increased by 13 per cent to Rs 21.20 billion.
Preliminary estimates of national income accounts recently released by Central Bureau of Statistics (CBS) have placed real GDP growth in basic prices at 5.6 per cent and in producers' prices at 4.7 per cent in 2007-08 compared to respective growths of 2.6 and 3.2 per cent the preceding year.
In 2007-08, agriculture and non-agriculture sectors are reported to have grown by 5.7 per cent and 5.6 per cent respectively. These sectors witnessed a growth of one per cent and 4.1 per cent respectively the previous year, states the report.
Paddy production surged by a whopping 16.8 per cent in 2007-08 mainly due to a favourable monsoon. Over the past three years, paddy production had experienced a continuous decline. Maize, wheat and potato production also surged by 3.2 per cent, 3.8 per cent and 5.7 per cent respectively in the review year.
Consequently, the index of food grains and other crops increased by 7.3 per cent contrary to the 2.7 per cent decline last year. Production indices of vegetables and nurseries, fruits and spices, livestock and forestry groups have accelerated.
However, manufacturing production index declined by 1.4 per cent in 2007-08 compared to a growth of 2.6 per cent in the previous year. The decline was on account of a substantial fall in the production of vegetable ghee and oil, plastic products, garment and domestic metal products.

Insurance companies to be more transparent

Beema Samiti, (Insurance Board) the regulatory authority of insurance companies, is doing homework to make insurance companies more transparent. "We are working to make them publish their quarterly reports to maintain transparency and inform small investors about the companies' financial health," said Devendra Pratap Shah, chairman of the regulatory authority that has the primary duty to protect policy holders, adding that "protecting the interest of small investors is also our duty."
At present, the insurance companies submit their reports yearly to the board but do not need to publish that in the newspapers. "We have just started a new regulation of submitting detailed reports," Shah said adding that earlier disclosure system was not very good.
The capital market is financial institutions-dominated because they are transparent due to the Nepal Rastra Bank (NRB) rule. According to the central bank rule, financial institutions must publish their quarterly accounts regularly. Failure to do so will invite penalty.
The insurance company group comes third in terms of trading of their shares at the Nepal Stock Exchange (Nepse) after financial institutions — Commercial banks, development banks and finance companies — and hydropower groups.
Currently, 17 insurance companies are listed under the insurance group that has a total of 17,187,384-unit shares worth Rs 1,718,738,400, according to Nepse. They have earned Rs 3.23 billion premium collectively in the fiscal year 2005-06 and the total collection of premium might be above Rs 4.5 billion at the end of 2007-08, but that has yet to be finalised.
Apart from these listed insurance companies, new companies like Prime Life Insurance (PLI), Gurans Life Insurance (GLI), Surya Life Insurance (SLI) and Asian Life Insurance (ALI) are floating 1.1 million-unit shares worth Rs 110 million each as life insurance companies need to have Rs 360 million for life insurance while non-life insurance companies need to have Rs 100 million, according to the new regulation.
The paid up and issue capital of all these insurance companies is equal to Rs 360 million, of which Rs 250 million belongs to promoters. "Within a year of its operation, Prime Life Insurance will issue 1.1 million-unit shares worth Rs 110 million," said Laxman Rizal, chief executive officer (CEO) of Prime Life Insurance.New players' entry in the insurance group ensures market expansion and more supply of shares that will help stabilise the capital market.
Buying shares of insurance companies is a more secure venture than any other companies as the insurance business itself is a secure one. Insurance is a tool of the financial sector that guarantees a insurer of their future. At present, less than five per cent of the total Nepali populace is reaping the benefits of insurance. Even property holdings of national importance are not insured. The life insurance sector's contribution to the GDP is only two per cent and it has generated around 20,000 direct and indirect jobs.
In Nepal, most people do not know insurance is a necessity and it is not at the top of their priority list. However, the fact remains that insurance is a valuable tool to protect a person's family from unforeseen events that can severely damage their financial futures. Sadly, not many people pay enough attention to this fact.

Listed Insurance Companies at Nepse
1. Nepal Insurance Co Ltd (NICL) -- 1,026,984-unit -- Rs 102,698,400
2. Rastriya Beema Sansthan (RBS) -- 995,138-unit -- Rs 99,513,800
3. National LifeInsu Co Ltd (NLICL) -- 300,000-unit -- Rs 30,000,000
4. Himalayan Gen Insurance (HGI) -- 630,000-unit -- Rs 63,000,000
5. United Insurance Co (Nepal) Ltd (UIC) 600,000-unit -- Rs 60,000,000
6. Everest Insurance Co (EIC) -- 900,000-unit -- Rs 90,000,000
7. Premier Insurance Co (PIC) -- 300,000-unit -- Rs 30,000,000
8. Neco Insurance Co Ltd (NIL) -- 550,000-unit -- Rs 55,000,000
9. Alliance Insurance Co (AIC) -- 599,862-unit -- Rs 59,986,200
10. Sagarmatha Insurance Co (SIC) -- 785,400-unit -- Rs 78,540,000
11. NB Insurance Co Ltd (NBIL) -- 1,000,000-unit -- Rs 100,000,000
12. Nepal Life Insur Co Ltd (NLIC) -- 2,500,000-unit -- Rs 250,000,000
13. Life Insurance Co Nepal (LICN) -- 2,500,000-unit -- Rs 250,000,000
14. Prudential Insurance Co (PICL) --1,000,000-unit -- Rs 100,000,000
15. Lumbini General Insu (LGIL) -- 1,250,000-unit -- Rs 125,000,000
16. Shikhar Insurance Co Ltd (SICL) -- 1,250,000-unit -- Rs 125,000,000
17. Siddhartha Insurance Ltd (SIL) -- 1,000,000-unit --Rs 100,000,000
Total -- 17,187,384-unit -- Rs 1,718,738,400

(Source : Nepal Stock Exchange Ltd. The unit and amount might increase as some of the insurance companies have distributed bonus shares and rights shares also.)

‘Double-digit growth is achievable’

Economists are hopeful that double-digit economic growth can be achieved if it is backed by sufficient investment.Speaking on the concluding day of the three-day Economic Summit, organised by Confederation of Nepalese Industries (CNI) here today, Finance Minister Dr Baburam Bhattarai said “economic miracle” of notching up a double-digit growth is possible.
“The target can be achieved if there are investments in key sectors like agriculture, water resources and tourism that can generate more employment. We are nearing the end of political revolution. The national debate on economy is a timely one,” he said.
He however, blamed the erstwhile planners and policy makers for poor economic growth. Dr Bhattarai felt that agricultural reforms hold the key to economic growth.
He reaffirmed that the Maoists will give priority to public-private partnership.“Tourism is another sector where we can do a lot. Lumbini can be developed as an international tourist destination equipped with international airport and luxurious hotels. Education and health are the other priority sectors since they can boost productivity. Massive investment in infrastructure is needed, besides harnessing water resources,” he said.
Former finance minister Dr Prakash Chandra Lohani said domestic consumption should be the top priority for hydropower generation since the country has been plagued by power crisis.“If we have surplus electricity, we can subsidise it for irrigation,” he said. Jagdish Agrawal tabled a paper on ‘Double-digit growth: A national strategy’ on this occasion. Agrawal said subsidised electricity can boost agricultural productivity.
“Irrigation is government’s responsibility. While, the private sector can provide raw materials, technology, loan facilities and ready markets,” he argued.
Dr Pitambar Sharma, newly-appointed vice-chairman of the National Planning Commission (NPC), felt that the body needs an overhaul. He wants the NPC to be structured on the lines of a national think tank.

More investment will ensure high wages

Nepali labourers are the lowest paid in the world, say economic experts who feel these workers should get respectable wages.
“If Nepal wants to guarantee higher wages to its labour force, it should invite more investment,” said Dr Ram Sharan Mahat, former finance minister while addressing the Economic Summit-2008 here today that has sought a commitment for Rs 12,000 monthly income of every Nepali.More investment, whether domestic or foreign, creates more competition in the market benefitting the labourers.
“Competition among companies will help increase the wages of labourers,” he said, adding that double digit growth could be achieved even without discriminating against the investments. “Without double digit growth, Rs 12,000 monthly income per person cannot be achieved.”
As there are no differences among the political parties on developing the nation and achieving high growth, ideological differences won’t create problems, opined Dr Mahat. “We need capital more than capital needs us,” he said adding that in the present context throughout the world pragmatism has overtaken ideology.
Dr Shanker Sharma, former vice-chairman of the National Planning Commission (NPC), presenting his paper on ‘Nepal’s economic growth, its analysis and suggestions for a prosperous Nepal,’ said capital was the key to growth and Nepal lacks it. “Private investment should be encouraged,” he said.
Countries like China (9.8 per cent), Cambodia (9.4 per cent), Vietnam (7.6 per cent) and India (7.4 per cent) have achieved high growth due to more investment. He called for boosting the confidence of the private sector, a vibrant market, good governance, simplification of procedures regarding trade and investment and improvement in infrastructure for growth. “Nepal can benefit those sectors that have competitive advantages like high-value crops, more irrigation for more crop productivity and hydropower generation,” he added.
“However, export is the dynamo for growth,” Sharma said, adding that export has been on a downslide over in the last decade due to various reasons.
Higher growth should match with equitable social justice for sustainability growth, otherwise there could be yet another revolution, said Radhesh Pant, president of Nepal Bankers’ Association (NBA).
Connectivity was the key to growth as it would help bridge rural-urban and rich-poor disparities, he said adding that the summit could be the first step towards it.
Disturbance in connectivity has hit the supply system. “Supply system should be improved,” Dr Tilak Rawal, former governor and Constituent Assembly (CA) member, said. The present inflation was supply-induced, he said. “Its not due to high demand, rather it is due to supply bottlenecks,” he said, adding that better water management for electricity generation and irrigation were vital for achieving growth.
“Agriculture subsidy is the crux of trade dispute at present between even the power nations,” Rawal added. “Government should subsidise fertilizers and electricity for farmers. By investing on farmers, government can bridge rural-urban disparity.”
“Development of water, land and forest also can bridge the rural-urban gap,” Top Bahadur Rayamajhi, Maoist CA member, said. However, CPN-UML CA member Dr Bishnu Poudel suggested a conducive industrial atmosphere for sustainable growth. Professor Madan Kumar Dahal stressed on operational and implementation-oriented policies.